Laura takes a hard money loan from North Shore Funding Group in order to remodel a house to resale in Menifee, CA. The list price of the property is $190,000. The terms of the loan include a 85% loan to value (LTV), so she must bring 15% of the price as cash at closing, which makes the principle note amount $161,500. The terms of the deal also stipulate a five percent origination fee that will be paid at closing and a 18 month, interest only note with a 13% rate of interest.
Laura will need to bring $28,500 to the closing (15% on the 85% loan-to-value), plus she will pay the $8,075 origination fee. The monthly interest-only payments will then total $1,750 to North Shore Funding Group. If Laura sells the property for $228,000 after 18 months, she would make a gross profit of $-1,568 after deducting the principle amount of $161,500, the cash paid at closing of $28,500, the origination points of $8,075, and the total interest payments of $31,493. This gross profit doesn't include renovation costs.